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Education: How to trade QuantShares ETFs

How to trade QuantShares ETFs


Institutional investors, RIAs, financial advisors and anyone else trading an ETF that is composed of liquid underlying securities can find immediate liquidity and execution for large trades in that ETF at very low cost, regardless of the ETF's trading volume and bid/ask quote depth. Unlike a regular equity security in which there is a somewhat fixed number of shares outstanding, ETFs can create new shares and therefore additional liquidity as frequently as necessary. Institutional traders called "Authorized Participants"" (APs) use the creation and redemption process to bolster ETF volume and satisfy market demand. Liquid portfolios make it easier for an AP to cover the cost of creating additional shares of the ETF, thus facilitating low cost execution. The more liquid the underlying securities are, the easier and cheaper it is for an AP to create more shares and meet demand. The APs will buy the underlying positions and deliver these securities to the fund's custodian in exchange for shares of the ETF that they can turn around and sell to their clients. This process reinforces that printed volume does not represent true market liquidity and, in fact, can actually be a very misleading indicator of an ETF's liquidity and in turn the true cost of trading.


Clients who have larger orders above 10,000 shares can place a direct (principal trade) with a broker at a pre-negotiated price close to NAV. The broker that a client can trade with is either also an AP or has direct access to an AP desk, which will be able to execute the trade directly. Sourcing liquidity through a principal trade with a sell-side counterparty minimizes market risk and also helps the client to establish a price prior to execution.

Source: Seeking Alpha Nov.15, 2011

QuantShares Authorized Participants

  • Barclays
  • Citi
  • Credit Suisse
  • Deutsche Bank
  • Goldman Sachs
  • JP Morgan
  • Knight Trading
  • Morgan Stanley
  • Nomura
  • UBS



QuantShares Trading Contact

Kevin Collins
617-292-9801




*AP - Authorized Participant




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